Economy In The Euro-Zone To Get Smaller In 2013

BRUSSELS—On Friday, the European Union’s official economists predicted that the economy in the euro-zone will get smaller in 2013, for the second year in a row, in a forecast with little hope that easing financial-market tensions in the area will jolt the real economy in the near future.

The European Commission forecasts a 0.3 percent contraction this year and sees declining spending by consumers, businesses and governments pushing euro-zone unemployment to a record high.

Massive joblessness is predicted to rise in countries hardest hit by the euro-zone crisis, with an average unemployment rate to get as high as 27 percent in Greece, 26.9 percent in Spain and 17.3 percent in Portugal.

The European Commission’s top civil servant, Marco Buti, said in a statement, “This has grave social consequences and will, if unemployment becomes structurally entrenched, also weigh on growth perspectives going forward.”

One of the largest obstacles euro-zone economies and governments will have to face is unemployment as they try to carry out austerity programs that are partially responsible for the bloc’s employment situation and dismal growth. The first test will likely come to France, which the commission predicts will miss its pledge to drop its deficit below 3 percent of gross domestic product by the end of 2013. Their predictions forecast the deficit in France in 2013 at 3.7percent of GDP.

Overall, the European Commission envisions the average euro-zone budget deficit dropping below the targeted 3 percent of national output this year for the first time since the recession.